Call This Financial Repression? Really?

Financial repression this ain't. Not unless you like playing victim...

All of a sudden, everyone's talking about financial repression - the capture
and torture of domestic savers with below-inflation rates of interest, so that
banking and government debt shrinks in real terms.

Given the post-war size of our debts, she goes on, "financial repression...with
its dual aims of keeping interest rates low and creating or maintaining captive
domestic audiences... will likely be with us for a long time." Check.

"[It's] equivalent to a tax on bondholders and, more generally, savers." Check.

Now if, like me, you already gave, then you might want to look for the exits
- and you really don't need to look very far. Yet to date, this sudden burst
of comment on financial repression can only counsel despair, despite the greatest
liberty of capital movement in 100 years. More oddly still, the classic escape-route
of buying gold -
an escape-route blocked worldwide when governments wore down their 20th century
wartime debts - has scarcely been mentioned.

Take the Financial Times; it's published 15 stories on financial repression
in the last month alone, yet only two mention gold. Google News counts 103
stories in English from the last 2 weeks globally, yet barely 1-in-4 dares
mention gold, and half of those only because they mention the high classical
Gold Standard ending 1914. Before then bondholders also got very low (but not
negative) real rates of interest. They also got the full return of principal
value on maturity.

"In [our] age of free capital movement, financial
repression is still possible," reckons another historian (and a member
of GMO's asset allocation team) Edward Chancellor in the FT, "because
it is being simultaneously practised in the world's leading financial centres.
Negative real interest rates are to be found not only in the US, but also
in China, Europe, Canada and the UK."

But so what? No one's yet forcing US citizens to keep their money inside the
States, and no one's forcing them to choose a Euro, Canadian or Sterling savings
account if they go elsewhere either. Which is lucky, with rates at 1%, 2% and
3% below inflation respectively. Yes, the finance industry is paying the price
of getting bailed out, with the world's $30 trillion in pension funds forced
to hold ever-greater quantities of sub-zero-yielding debt. But outside the
still-repressed East, private savings today enjoy unheard of freedom to go
where they wish and do as they please. And even there, in India and China most
notably, the freedom to buy gold - the universal financial escape - is similarly
at a 100-year peak.

Witness the British experience with investment gold, for instance. Suspending
the Gold
Standard when war broke out in 1914, London banned domestic gold trading
by private individuals throughout both world wars, pretty much all the time
inbetween, and for more than three decades after Hitler put a hole in his head.

The cost to cash savers and gilt-holders? One hundred pounds lent to the British
state in 1945 was worth £91 in real terms by 1980. Whereas £100
held in gold would have become £304 of inflation-adjusted real value.
But unlike today, gold wouldn't have done you much good in the meantime, because
it was nailed to currency values (not vice versa) by the false peg known as
the Dollar Exchange Standard. And also unlike today, you would have been breaking
the law for much of that time, simply by owning coins or gold bars.

A brief window opened in 1971, but it was closed four years later because
savers used it too freely, sparking a foreign currency drain that brought down
the shutters on foreign inflows of metal again. It took another four years
for the UK's gold controls to be lifted entirely. By which point gold had already
begun its big move. Real rates turned strongly positive 12 months later, and
the urgency of buying
gold to escape repression was gone.

Financial repression this ain't, in short, but nor would it be new if it was.
Our current freedom to buy gold is very new, in contrast, along with the wealth
of alternatives - both domestic and foreign - open to anyone daring to take
control of their money instead of lending it to government or paying a pension-fund
manager to do the same.

Take note: Nothing is certain to repair the losses you suffer on other, captive
investments today. US citizens, for example, suffering real interest rates
4.6% below inflation in Jan. 1975 were allowed to buy gold for the first time
in three decades. Bullion promptly dropped half its Dollar price, shaking out
all but the most pig-headed investors over the next 18 months before rising
8-fold by the start of 1980.

"In [our] mildly reflating world" however, advises Bill Gross of Pimco, "unless
you want to earn an inflation-adjusted return of minus 2%-3% as offered by
Treasury bills, then you must take risk in some form." And buying gold is just
such a risk - a uniquely simple and obvious one, offering a stateless escape
to a borderless market. But make no mistake: Swapping the credit and inflation
risk of cash and bonds for physical gold means exposing yourself to price risk.

Volatility is certain as retained wealth worldwide thrashes free from the
imaginary manacles of the financial press, and the traps laid for the unwary
by the packaged financial industry.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.

BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.